"The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well."- Ralph Waldo Emerson

Saturday, September 08, 2012

Public Work Failure: US Stadiums Burn $4 Billion

Devotees of public work (infrastructure) spending, who see such measures as necessity to lift statistical economic growth, should learn from the experience of US taxpayer funded stadium spending binges.

New York Giants fans will cheer on their team against the Dallas Cowboys at tonight’s National Football League opener in New Jersey. At tax time, they’ll help pay for the opponents’ $1.2 billion home field in Texas.

That’s because the 80,000-seat Cowboys Stadium was built partly using tax-free borrowing by the City of Arlington. The resulting subsidy comes out of the pockets of every American taxpayer, including Giants fans. The money doesn’t go directly to the Cowboys’ billionaire owner Jerry Jones. Rather, it lowers the cost of financing, giving his team the highest revenue in the NFL and making it the league’s most-valuable franchise.

“It’s part of the corruption of the federal tax system,” said James Runzheimer, 67, an Arlington lawyer who led opponents of public borrowing for the structure known locally as “Jerry’s World.” “It’s use of government funds to subsidize activity that the private sector can finance on its own.”

Jones is one of dozens of wealthy owners whose big-league teams benefit from millions of dollars in taxpayer subsidies.Michael Jordan’s Charlotte, North Carolina, Bobcats basketball team plays in a municipal bond-financed stadium, the Time Warner Cable Arena, where the Democratic Party is meeting this week. The Republicans last week used Florida’s Tampa Bay Times Forum, also financed with tax-exempt debt. It is the home of hockey’s Lightning, owned by hedge-fund manager Jeffrey Vinik. None of the owners who responded would comment.

$4 Billion

Tax exemptions on interest paid by muni bonds that were issued for sports structures cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show.

Those estimates are based on what the Treasury could have collected on interest from the same amount of taxable bonds sold at the same time to investors in the 25 percent income-tax bracket, the rate many government agencies assume. In fact, more than half the owners of tax-exempt bonds pay top rates of at least 30 percent, according to the Congressional Budget Office. So they save even more on their income taxes, a system that U.S. lawmakers of both parties and President Barack Obama have described as inefficient and unfair.

And as I recently pointed out, the proposed 407 billion pesos spending by the Philippine government on infrastructure has been seen by media as signs of progress. They see this, under the impression that the incumbent government has been “clean” enough to undertake them.

All these signify a grand delusion. Populism ignores economic reality.

The public fails to understand that NO government have the requisite knowledge of the value scales and time preferences of individuals or of the the knowledge of the particular circumstances of time and place (Hayek) from which serves as the foundation of economic activities. Economic activities basically represent a bottom up phenomenon.

Second, government projects are likely designed under the influences of vested interest groups or cronies or if not by bureaucrats who will be designating them to the same groups for implementation.

Third, the private sector collaborators will benefit from the exposure of taxpayers money through guarantees or subsidies.

In many instances, both parties will find ways to game the system.

Moreover, money spent on public works focuses on short term political goals to promote media popular unproductive employment (to generate approval ratings and votes) at the expense of productive enterprises which provides real productive jobs.

For then the usefulness of the project itself, as we have seen, inevitably becomes a subordinate consideration. Moreover, the more wasteful the work, the more costly in manpower, the better it becomes for the purpose of providing more employment. Under such circumstances it is highly improbable that the projects thought up by the bureaucrats will provide the same net addition to wealth and welfare, per dollar expended, as would have been provided by the taxpayers themselves, if they had been individually permitted to buy or have made what they themselves wanted, instead of being forced to surrender part of their earnings to the state.

Of course, all these leads to higher taxes and to price inflation (if these debts will be funded by politically directed credit expansion).

Finally, as shown by the US Stadium experience, politicization of resource allocation leads not only to inefficiency, wastage, but to immoral relationships between officials and their private sector lackeys.

The impression where government will be “virtuous” enough to undertake “honest” public work spending has been founded on utopian fantasies.

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Psalm 23:

-The Lord is my shepherd; I shall not want.

-He maketh me to lie down in green pastures: he leadeth me beside the still waters.

-He restoreth my soul: he leadeth me in the paths of righteousness for his name's sake.

-Yea, though I walk through the valley of the shadow of death, I will fear no evil: for thou art with me; thy rod and thy staff they comfort me.

-Thou preparest a table before me in the presence of mine enemies: thou anointest my head with oil; my cup runneth over.

-Surely goodness and mercy shall follow me all the days of my life: and I will dwell in the house of the Lord for ever.